Prepare for unexpected expenses in your first year of homeownership

Becoming a homeowner is a significant and exciting financial milestone, marking the start of a new chapter in your life. Along with the joys of homeownership comes the responsibility of managing the costs associated with maintaining your home and ensuring its long-term value. A key aspect of managing your finances as a new homeowner is preparing for unexpected expenses that may arise during the first year of homeownership.

Recent research from the Federal Reserve suggests that nearly 40 percent of adults in the United States cannot cover a $400 expense with cash or a credit card. From unexpected home repairs to medical bills, having a solid financial plan in place can help you weather these surprises without compromising your financial stability. 

Build a financial safety net 

Establish a solid emergency fund 

One of the most important steps in preparing for unexpected expenses is to establish an emergency fund. This fund will act as your financial safety net, ensuring you have enough money to cover a variety of unexpected expenses, including home repairs, car repairs, medical bills, and even temporary loss of income. 

Wondering how much you’ll need? Use our interactive emergency savings calculator!

A good rule of thumb is to save at least three to six months’ worth of living expenses. If you’re living off a moderate income, it may take some time to build this fund, but it’s crucial to start as early as possible. Keep this emergency fund separate from your regular savings account to reduce the likelihood of dipping into it for everyday expenses. Keep funds in a liquid account, such as a high-yield savings account, so you can access it quickly when you need it. 

Pro Tip: Using “extra” money like your tax return or your annual bonus is a great way to seed an emergency fund.

Create a homeownership budget 

Once you’ve settled into your new home, it’s important to track and manage your household expenses. In addition to your mortgage payment, there are ongoing costs such as property taxes, home insurance, utilities, and maintenance. These costs can vary widely depending on where you live and the size of your home, so it’s essential to build a comprehensive budget that accounts for both expected and unexpected expenses.  To prepare for the unexpected, include a line item in your budget for emergency expenses. These could include small home repairs, car repairs, or an unexpected medical bill. You may also want to budget for things like replacing appliances or dealing with a leaky roof. If you encounter unexpected home repairs or a surprise bill, you’ll be glad to have a buffer in your budget to help you cover those costs without affecting your long-term financial goals. 

Build up a checking account buffer

In addition to maintaining an emergency fund, it’s smart to keep a buffer in your checking account for day-to-day unexpected expenses. This buffer can act as a quick-access source of funds when you need to cover smaller unexpected expenses, such as car repairs, a special holiday or event, or a family activity.  Having a small buffer in your checking account can help you avoid relying on credit cards to cover these costs. Credit cards can quickly accumulate high-interest debt, which can make it difficult to pay off unexpected expenses. Instead, keep a healthy balance in your checking account  to avoid relying on credit cards and stay on track with your financial goals. 

Manage your mortgage loan 

One of the most significant expenses associated with homeownership is your mortgage payment. Mortgage interest can add up quickly, especially if you have a large loan balance or a high interest rate.   If you have a mortgage with a fixed interest rate, your monthly payments are predictable. However, your payment could still increase if your property taxes or insurance premium increases. A temporary spike in your monthly payment often compensates for a shortage in your escrow account until you reach the threshold again. You may also have the option to make a one-time deposit to your escrow account to avoid a monthly mortgage payment increase — another great use for your emergency fund!  

Pro Tip: Refinancing your mortgage is a common practice and can save you hundreds of dollars in your budget each month. Check our rates for opportunities to save on mortgage interest!

Understand the importance of home repairs 

One of the most common unexpected expenses for homeowners is home repairs. Whether it’s a leaky roof, a broken appliance, or a malfunctioning HVAC system, home repairs are often inevitable. For new homeowners, the costs associated with repairs can be particularly surprising and can easily catch you off-guard.  While some repairs may be minor, others may be more expensive and require professional help. It’s a good idea to set aside a portion of your emergency fund specifically for home repairs. A home is the largest purchase you’ll ever make — ensure you maintain it responsibly to preserve its integrity and resale value.  

Keep track of common unexpected expenses 

Common unexpected expenses in the first year of homeownership can include: 

• Home repairs: From fixing leaky pipes to replacing a furnace, home repairs are a frequent and often costly expense for homeowners. 

• Car repairs: If your car breaks down unexpectedly, it can be expensive to fix. Having an emergency fund or checking account buffer can help cover these costs. 

• Medical bills: Health insurance may not cover all your medical expenses, especially if you need to pay for specialist care or prescription medications. 

• Credit card debt: If you don’t have enough in your emergency fund, you may have to use your credit card to cover these expenses. However, high-interest credit card debt can quickly accumulate, making it harder to pay off. 

Pro Tip: Empeople financial guidance experts can help you develop and stick to a comprehensive plan, ensuring your path to financial success.

By anticipating these common unexpected expenses, you can take steps to minimize their impact on your finances. 

Protect yourself from medical expenses 

No one plans to get sick or injured, but healthcare costs are often unavoidable. Health insurance can help cover some of these expenses, but you may still face out-of-pocket costs such as co-pays, deductibles, or treatments not covered by your plan. In some cases, these costs can accumulate and have a significant impact on your finances.   To prepare for these potential costs, make sure that you have adequate health insurance coverage. If you’re self-employed or don’t have access to employer-sponsored insurance, consider purchasing a plan through the Health Insurance Marketplace. Additionally, setting aside a portion of your emergency fund for medical expenses can help you avoid going into debt if an unexpected medical situation arises. 

Get support from family members 

In some cases, family members may be able to help cover unexpected expenses. If you encounter a major emergency expense and don’t have enough funds saved, consider reaching out to a trusted family member for assistance. They may be willing to lend you money or help in other ways.  However, be mindful of the terms of any loan or financial assistance you receive from a family member. It’s important to have clear communication about repayment expectations to avoid misunderstandings or damage to relationships.  Family support can also extend to specialized skills and knowledge. If you have a relative who’s a plumber, contractor, or just particularly handy around the house, consider reaching out for help. While they may not offer their services for free, they could provide assistance at a more affordable rate, and you may find it easier to schedule compared to working with an outside service provider. 

Don’t forget about non-essential expenses 

While it’s important to prepare for home repairs, car repairs, and medical bills, it’s also crucial to account for non-essential expenses. These are the expenses that may not be critical but can still add up, such as travel, entertainment, or dining out. By cutting back on these non-essential expenses, you can ensure that you have more room in your budget for unexpected costs that arise during your first year of homeownership.  Homeownership brings both joys and challenges, but with the right preparation, you can navigate your first year without feeling overwhelmed by life’s hurdles. By staying proactive and disciplined, you can ensure that you’re ready to cover the unexpected with confidence and ease.